US markets stable, XJO to open lower

The XJO is expected to edge lower on open this morning despite a meek rise in the U.S on Friday. Their futures are flat.

The U.S is within arm’s reach of their all-time highs, but our market is struggling to follow suit. On Friday we managed to bounce from both the 50 day MA and a short-term uptrend line that has been in play since the recent lows back down at 7,550. However, it seems we are staying near the comfort of the 50 day MA as we wait and see how the U.S reacts to the CPI reading on Wednesday night. This reading is particularly important as it will either vindicate the recent dovish tones from Powell, or betray him. With the market rallying into the reading, it is hard to say with any certainty as to how things will play out. It seems reasonable to suggest however, that for U.S markets to make fresh all-time highs, inflation would likely need to come in softer than expected. Otherwise, if their market doesn’t get what we want, they are in an elevated position for a selldown. Our market will likely be dragged along either way.

7,800 remains local resistance which we rebounded from last week. If we managed to push through, then our all-time resistance comes in at around 7,900. If markets sell off on the back of the inflation reading, then 7,700 and 7650 are key supports on the way down towards the bottom of the range (which comes in at roughly 7,550 to 7,500). It seems likely at this stage that our market remains range bound, with perhaps a bullish or bearish tilt which is yet to be determined.

Aside from the CPI reading on Wednesday night, in the week ahead: the U.S has PPI data on Tuesday night and Powell is also set to speak. U.S retail sales numbers are expected to soften Wednesday night alongside the CPI. On Thursday, we have local employment data – unemployment is expected to increase slightly to 3.9% from 3.8%. Finally, there are various Fed members talking throughout the week.

US Markets

US shares closed relatively flat on Friday, with little change across the three major indices. US shares have been pushing strongly higher for the past fortnight, and with shares approaching the all-time highs, it seems they decided to take a breather. There was a lack of major US economic data, though a report did show that consumer inflation expectations were rising, not a great sign for the market. The main event for this week will be US CPI data on Wednesday night, which will likely be the determining factor in whether we see fresh highs reached for the SP500 or whether markets head back to (and perhaps below) their recent lows.

Six of the eleven sector groups of the SP500 closed higher on Friday, with Staples and Technology stocks the best performers. Discretionary stocks saw the most selling, followed by Energy stocks.

Technically, the SP500 is trading just below the all-time high resistance, with the market perhaps stalling at the level just below, roughly 5,200-5,220. Should the index rise any further, we would quickly see a move to the all-time high resistance, which would have to break for subsequent gains to look likely. Should the index fall from here, we would be seeing a lower peak, which would potential signal further selling.

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